Rising international tensions sent the City seeking cover today as markets reacted to the attack on a Malaysia Airlines passenger jet, which claimed 298 lives, and continuing unrest in the Middle East.

The FTSE 100 followed Asian stock markets lower and the oil price rose as the deadly attack on the jet over Ukraine, believed to have been made by pro-Russian separatists, frayed the nerves of the Square Mile. Sentiment was also hit by Israel sending troops into Gaza for the first time in five years.

London’s blue-chip benchmark was down 0.5 per cent in a rocky day for European markets following the biggest one-day drop for Wall Street’s S&P 500 since April, 1.2 per cent. Moscow’s Micex index fell 2 per cent in early trading and the rouble lost ground against the dollar for the sixth day in a row as the United Nations security council convened following the attack.

The announcement of fresh US sanctions against Russia for its alleged support of separatist rebels in eastern Ukraine ratcheted up the tension, pushing investors into the safe havens of US Treasury bonds, which saw the biggest spike in prices since March. The gold price was flat after surging in the immediate wake of the airliner’s crash.

Alastair McCaig, market analyst at IG Group, said: “There’s a measure of caution out there. It’s a ‘risk off’ day. With this kind of situation there is likely to be more newsflow over the weekend, but the markets are shut so there’s no chance to react. There have been positives lately like a decent US earnings season, so investors are taking some money off the table.” Brent crude jumped more than a dollar to $108.33.

UniCredit head of fixed income strategy Michael Rottmann said: “Tensions will most likely continue into the weekend. Furthermore, Israel sending ground troops into the Gaza Strip adds to geopolitical concerns. While at current levels both Bunds and US Treasury valuations look extremely rich, it is clearly not the time to position in the opposite direction.”

Malaysia Airlines shares were down as much as 18 per cent at one stage after the second disaster for the company in four months following the unexplained disappearance of flight MH370 in March. The company, led by chief executive Ahmad Jauhari Yahya, pictured, has seen a third of its share price value wiped out in the first half of the year following the two disasters.

Comment: Beware the summertime blues

The old adage for stock-market investors is “sell in May and go away”.

Those who followed it have made the right choice so far this year as the FTSE 100 is down around 2% in the past two months.

On paper things are looking good for equities at the moment: despite worries over China, a recovery is under way at home, the US is winding up its money-printing programme and in Europe the central bank is throwing the kitchen sink at propping up growth.

But markets run on sentiment as much as fundamentals. The ongoing crisis on Europe’s doorstep in the Ukraine together with a new flare-up of violence in the Middle East is just what investors looking for a smooth ride during the next few weeks didn’t need.

What’s more, we’re getting into the holiday season, the main City big hitters are on the beach, and volumes are lower — meaning plenty of volatility ahead.

Most of the big blow-ups of recent years have been in the summer — think credit crunch in 2007 and the eurozone’s near-meltdown in 2011.

If global tensions don’t ease it could be time to hang on to your hats.

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